If this all seems familiar, that’s because today, the United States will auction 10 and 30-year Treasuries. This event will be an important moment in shaping our financial landscape. This auction is occurring at a unique time, as US equity indices are at or approaching all-time highs. This indicates very bullish market sentiment from investors. What’s more, numerous global equity indices are hitting such highs too, land marking a broad-based confidence in economic recovery.
Today’s auctions will be telling and instrumental in shaping market reactions and market expectations. The backdrop of this event includes various viewpoints from Federal Reserve members, which many analysts anticipate could sway decisions regarding interest rates in the near future. The VIX, the market’s primary gauge of volatility and the investor anxiety index, has pulled back significantly from mid-October highs.
The US economy has shown a remarkable ability to bounce back quickly and completely from past shutdowns. It is this historical precedent that leads many economists to be cautiously optimistic about the current economic outlook. Much still remains shrouded in uncertainty as the market waits impatiently for the September national payrolls report. This important data might be available as soon as next week. This new report is essential to understanding the changing dynamics of our labor market in the wake of COVID and other disruptions.
One of those worries is that the release of October’s presidential jobs and inflation data may be delayed. In large part, these anxieties are being driven by an ongoing concern over data collection. These additional delays could make the Federal Reserve’s ability to judge current economic conditions a much more difficult task. Looking ahead, one of the most senior members of Trump’s EPA transition team, Myron Ebell, has openly questioned the veracity of the existing data calling it “garbage.” During these very difficult times, he claims that the Fed should lower interest rates in order to stimulate the economy.
“As the Federal Reserve moves close to its next policy meeting, a sense of reticence seems to be replacing optimism among policymakers. ‘Absent evidence of a notable labor market deterioration, I would be hesitant to ease policy further, especially given the limited information on inflation due to the government shutdown,’ stated Susan Collins, a member of the Fed.”
The market’s present pricing of Fed futures indicates considerable doubt over a December rate reduction. As of this writing, the odds are slightly over 50%. Regional Fed officials have argued for a temporary approach until a worse data condition develops.
The Atlanta Fed’s GDP Now forecast is projecting a healthy growth rate of about 4%. Our simple linear regression models predict only a fraction of that number by the end of the week. This variance illustrates the difficulty of predicting economic forecasts and emphasizes the value of data yet to be released.
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